MARKET WATCH NEWSLETTER

Lockton Real Estate & Construction

November 2019

@LocktonREAC www.LocktonREAC.co.uk Broking done differently

PAGE 1 So, Halloween came and went without the promised resolution to the endless uncertainty around the UK’s departure from Europe. With What’s inside increasing evidence of price stagnation and transactional inertia in the residential market, the commercial property is scarcely any livelier. Brownfield opportunties for developers and The results of a quarterly survey by the RICS, published on the very day owners the UK failed again to exit the EU, found that more respondents felt we PAGE 2-3 are in the downturn phase of the property cycle than at any time since the poll began in 2015. The report concluded that Brexit is having an The curious case of the church roof repairs ‘increasingly detrimental impact on market activity.’ PAGE 3-4

While we can’t entirely promise to raise your spirits from the slough of Brexit uncertainty, perhaps we can at least distract you with the latest An asset on the rise: Infrastructure issue of our Market Watch Newsletter. In which, you’ll find articles PAGE 5-6 on opportunities in brownfield site development and infrastructure development - and the hazards of chancel repair liabilities. Events PAGE 7 We’ll be back with another edition in the new year, by which time we’ll have a new government - and maybe even an end at last to the saga of Brexit.

RICHARD OWEN HEAD OF LOCKTON REAL ESTATE AND CONSTRUCTION PARTNER, LOCKTON COMPANIES LLP T: +44 (0)20 7933 2452 M: +44 (0)7776 170 759 E: [email protected]

HAVE YOUR SAY

If you have any comments on this edition of our newsletter or would like to contribute an article to a future edition, please contact us at: [email protected]

PAGE 21 Brownfield opportunities for developers and investors

In the present climate it can be tricky to identify real estate assets where clients are able to realise value. Across the development and investment markets a far more sector focused approach is being taken. Some sectors are hot, some Jenny Sargeant, Fladgate LLP are not…. At Fladgate we are helping our clients We live in a world where it is becoming mainstream to be We recently carried out a client survey and 73% of our clients identify those sectors vegan, it’s a social faux pas to forget your own bag when believe that brownfield is a growth sector for the next three shopping and plastic packaging is on the way out. Concerns years. Our sweetspot is acting for entrepreneurial clients who where opportunities can be about our environment and the likely extinction of many we class as “trend initiators”, so we think this is a message unlocked and in particular species have increasing profile and influence. Set against this worth listening to. we are focusing on the is the reality of a growing population worldwide, a trend of opportunities presented by increasing urbanisation set to continue for many decades in What our survey also revealed is that new entrants and brownfield development the UK and a shortage of housing. There is an opportunity lenders are nervous about some of the challenges presented in the property market to leverage off these demographic by brownfield. There is increased likelihood of contamination and investment in our changes by delivering schemes which cater to society’s issues needing to be dealt with and though sites will already Brownfield campaign changing needs by reusing redundant space. have infrastructure links and utility connections most will (follow our campaign at need major overhaul to accommodate a modern more #FladgateBrownfield). Our established developer clients have been involved in intensive development. Lenders and investors are sensitive brownfield development and regeneration for a long time. about the potential costs and delays that may be caused by Brownfield land is land They are highly specialised at what they do and are expert addressing these issues. which has previously been at delivering schemes to cost and on time (even with the used before, so what we usual brownfield “quirks” factored in). They are passionate As with any development, rights of lights issues can also are talking about here is the about what they do and have great vision and an ability to present, especially if the intensification of use means building maximise the use of sites. And what they really care about is upwards and increasing the envelope of the building. There “recycling” of land. “placemaking” – their ability to reinvent or relaunch an area are also likely to be historic rights on the title relating whilst retaining a sense of heritage and history. to previous use and often parcels of unregistered land (especially when a developer is consolidating smaller plots to piece together a larger site).

PAGE 31 All of these issues are matters which experienced developers are very used to dealing with. A developer will be looking to tie down these issues as The curious case of the church soon as possible to de-risk them. Third party consent processes need to be initiated as soon as possible so these do not hold the project up further down roof repairs the line. Contractors in the current market will be very resistant to taking on any remediation risk so Richard Ward, Countrywide Legal Indemnities developers will prioritise carrying out investigations to quantify remediation costs. With rights of light The days when every landowner paid a tithe may be long gone, but the and title issues, insurance is often the solution so that church can still rely on a medieval law to raise funds. An anomaly of the developer can proceed quickly but still ensure its funder and investors have confidence that any issues property law in England and Wales is that owners of properties built on that present down the line can be mitigated. current or former church land can be liable to help fund urgent repairs to their local parish church. When this happened to a client of ours recently, Our developer clients see all these issues as part they were glad they’d insured to cover the cost. of the course of their business. They have the experience to be able to address issues as they arise Our client owned a large commercial warehouse in the West Midlands. When they came to either internally or by engaging consultants. This remortgage the property a few years ago, a diligent solicitor discovered that - since the original track record is very important in securing financing purchase - the title had become subject to a Unilateral Notice for chancel repair liability in favour arrangements. Because of this Brownfield is not a of the local Parochial Church Council (PCC). This updated and reinforced the owner’s potential sector likely to see a high influx of new developer liability for church repairs and prompted their solicitor to recommend taking out chancel liability entrants. However, by partnering with established insurance. developers, investors can increase their exposure to this growth sector. The issuing of the Unilateral Notice indicated a greater likelihood of a claim at some point in the future, so we wanted to investigate the circumstances further. We learned that the property was Brownfield is an opportunity for the property industry some distance from the church in a built-up area, so any liability would be heavily diluted and on to be part of a much needed wider solution to that basis, we provided a policy with a £500,000 limit for a premium of £495. address the serious issues affecting our environment. Given growing “consumer conscience” we expect this Then, in December 2017, our client received a letter from the PCC advising them that the sector to be increasingly attractive to investors. It is chancel roof of the church needed repairs costing £90,000. In strictly legal terms, because the an example of sustainability and business opportunity responsibility had been assessed as ‘joint and several’, a single plot owner could have been held going hand in hand and a sector to watch in the responsible for the whole sum, with the onus on them to identify others with whom to share the future. burden.

JENNY SARGEANT | Partner Fortunately for our client, the PCC had instead identified the owners of 16 large plots and asked Fladgate LLP each for £5715 as a one-off payment, in return for which the Unilateral Notice would be cancelled, T: +44 (0)20 3036 7288 absolving the owners of any future liability. E: [email protected]

PAGE 42 Lockton are sponsoring the Student Accommodation Conference

Wednesday, 11th December

Lockton are once again sponsoring the Student Conference. The PCC’s approach was fair, but also firm. expense and delay of instructing lawyers. We’ve If you would like to meet with a member of the team, please Two of the 16 claimed they couldn’t afford to learned from previous chancel claims that it’s visit stand 15 or contact us as follows: contribute. Having assessed their business rarely simple or straightforward determining accounts, the PCC agreed that one could pay whether or not such archaic liabilities apply. less, but insisted the other pay up in full! Ben Warman From our client’s point of view, the claim clearly Partner Member of REAC Executive Committee Having been notified of the claim, our in-house had a happy ending. Just three weeks had T: +44 (0)20 7933 2623 claims team had to decide whether to accept elapsed from the moment we were notified of M: +44 (0)7810 815 863 the liability or challenge the claim’s validity. the claim to the money arriving in their account. E: [email protected] This is a crucial moment in any claim, requiring A bonus was a settlement letter from the PCC a thorough grasp of the background and all confirming that our client had no further liability Rachel Norris relevant facts before making a judgement. for future repairs. Senior Vice President

The PCC had produced a background document To the uninitiated, it might seem bizarre that T: +44 (0)20 7933 2353 based on specialist advice received prior to - two decades into the twenty-first century - M: +44 (0)7825 503 413 registering the Unilateral Notice. The original we’re still seeing claims for chancel repairs. E: [email protected] tithe document confirming that the affected properties were subject to the liability dated To those of us more familiar with the endless Himesh Patel from 1847 and was more than eighty pages long. vagaries of the insurance world, it’s just another Business Development Executive reminder that wherever there’s any kind of claim An extract of several key pages sent to our to be made, there will be someone there to T: +44 (0)20 7933 2788 client was hard to decipher. Fortunately, make it! M: +44 (0)7920 410 431 E: [email protected] several of the other landowners had already instructed their solicitors to assess the PCC’s Richard Ward | Broker Underwriting Team documentation and subsequently agreed to pay. Manager Countrywide Legal Indemnities On that basis, we were happy to take a commercial decision to pay the amount T: +44 (0)1603 753833 E: [email protected] demanded without incurring the additional

PAGE 53 An asset on the rise: Infrastructure

As time and technology have progressed, the term ‘infrastructure’ has broadened to encompass everything from water systems to data centres. Sharing similarities with real estate investing, it is now becoming part of the same conversations as traditional real estate investors seek longer-term returns.

Flagging government commitment, rising Simon Burgess, Ocorian investor demand, technological innovation and an evolving regulatory landscape are A real plateau? For UK institutional investors, such foreign strategies all contributing to the increasing appeal of have created a fully-priced home market pushing infrastructure to private investors. Since the referendum in the UK there has been a yields down and values up. This has made capital notable influx of capital from Asia, North America deployment a tough job for UK-based real asset Spanning the risk-return spectrum from and the Middle East, all taking the opportunity to investors. Non-UK investors have benefited, but as lower-risk public-private partnerships in capitalise on the subsequent sterling depreciation. In the market settles into a new norm, there will be developed economies to more private isolation, such currency strategies are not necessarily a focus on stable long-term returns; an attractive a major issue, but they do open the door for the aspect of infrastructure investment. equity-like (and therefore higher risk) types of investment plays favoured by, say, Korean assets in less developed countries, investors. While relative capital values fall (driven by Hitting the mainstream infrastructure investing can play a valuable weaker currency), Korean investors have capitalised role in portfolio strategies. Research on short-term currency boosts to obtain returns on Previously occupied by major pension and sovereign conducted with intermediaries by capital investments of 3% to 4%; compared with 1% to wealth funds seeking liability-matching yields and investment management firm Foresight 1.5% which is commonplace in their home jurisdiction. inflation protection, infrastructure projects are often income-producing real asset-backed investments Group LLP revealed that 62% of advisers In conjunction with Brexit, foreign investment strategies have certainly played their part in the that offer attractive returns over the long-term. will increase their clients’ allocation to levels of confidence in UK real assets as a whole. A In many cases, infrastructure investments are infrastructure over the next three years, an 2017 survey by the British Property Federation and dependable, unique assets offering diversification increase from 32% in 2018. Grosvenor Britain & Ireland revealed that confidence and can transcend political and economic cycles. It surrounding the real estate sector’s performance over is also seen as necessary. McKinsey Global Institute the following year dropped from 88% to 40%. estimates that USD$3.3 trillion must be spent annually to 2030 in order to support expected global rates of growth.

PAGE 64 UK infrastructure has strong Infrastructure is also benefiting from an increase in funds with potential despite Brexit substantial capital to deploy. This does not mean more capital is being deployed across the market, just that capital being In the UK, infrastructure remains an attractive collected is deployed through larger funds; albeit across a fewer destination for foreign capital seeking number of funds. For example, Brookfield Asset Management and medium to longer-term investment prospects. Global Infrastructure Partners have closed a number of flagship The 2019 edition of The Global Infrastructure infrastructure funds in recent years, with the latest raising over Hub and EDHEC Infrastructure Institute USD$14bn. survey ranked the UK as the third market with the most potential for private infrastructure The recent establishment of the Estates and Infrastructure Exchange investment over the next five years. (EIX) also shows promise for bridging the infrastructure funding gap. The first global exchange to focus exclusively on estates and A world in need infrastructure as an asset class, the EIX aims to create liquidity, provide transparency in pricing and improve the analysis of project The demand for infrastructure runs parallel to finance risk for investors. the swelling global population. As McKinsey highlight, USD$3.3tn of investment per year A familiar alternative to 2030 is required to support the expected population. If the current trajectory of under- Infrastructure investments often exhibit similar characteristics to investment continues, this target will be both real estate and private equity investments: missed by $350bn per year. This highlights the necessary demand for infrastructure Private Equity Real Estate Advantages investment, which presents a huge Similarities Similarities opportunity for private capital. • Larger capital • Real Estate • Long duration, value based enduring dependable Ocorian’s infrastructure fund administrators • Larger ticket size • Dictated by asset can help you establish fund structures and and similar fund traditional RE characteristics market forces • Continuous also provide ongoing fund administration and revenue stream accounting services, freeing your time for • Operational and • Continuous through rental value-adding activities. logistical aspects revenue stream income streams to consider and through rents run • Provides • All risk yield Infrastructure diversification Simon Burgess | OCORIAN • EBITDA based based capital Head of Alternative Investments valuations valuations • Variable valuations bases T: +44 (0)1534 507130 (depending on E: [email protected] specific asset type)

PAGEPAGE 57 Highlights from recent events

Property Issues Seminar Dimitra, the Clinical Impact Richard Owen presented all WEDNESDAY, 16TH Manager and Senior Art the trophies, including best OCTOBER Therapist at Kids Inspire was overall team and best flurry. extremely excited when she Our most recent Property saw the wooden gazebo. ‘It Richard said, “It was a Issues Seminar was hosted is a space where we can have fantastic day and we would on 16th October and was group art therapy sessions. By like to extend our thanks and attended by over 80 guests. hanging the paper down the appreciation to Aviva for We hope that everyone sides, the children will be able sponsoring this event. We enjoyed the presentations to use their whole bodies as are really pleased to have the given by our guest speakers: they paint, and the benefits support of our valued clients Paul Hargreaves (Lipton of being outside are amazing. and contacts in the industry Rogers), Michela Hancock Thank you so much.’ who generously participated, (Greystar), Lois Salem enabling us to raise money (Longevity) and Jonathan To find out more about for the charities which form Brown (Mace Group). Lockton’s Corporate Social the Lockton Charitable Responsibility, please speak Association. Presentation topics included: to a member of your Lockton 22 Bishopsgate, Designing, REAC team or visit http:// “We are also very grateful for delivering and operating www.locktoncharity.org.uk/. the support of our Lockton Build to Rent in the UK, Associates who ensured that Sustainability in buildings and Lockton REAC Charity Clay everything ran smoothly, and Mace technology and Modern Shoot the exceptional instructors Upcoming events Methods of Construction. THURSDAY, 24TH OCTOBER at Holland and Holland who helped make this a Claims Code Seminar Property Issues Seminar We would like to thank We held our 9th annual clay memorable and successful THURSDAY, 21ST NOVEMBER 2019 WEDNESDAY, 19TH FEBRUARY the presenters for their pigeon shoot on Thursday, event”. 2020 valuable time in preparing 24th October. This event Glyn Hassall - Paragon Risk and delivering these raised over £5,000 for Engineering Speakers will be confirmed in due presentations. the Lockton Charitable “Water damage, a guide to loss course. Association. prevention” Lockton REAC Community Lee Hewitt, Louise Banks, Deborah Day The event, which was Hessey - RSA Group THURSDAY, 17TH OCTOBER sponsored by Aviva, was “A day in the life of a Claims Handler” once again held at Holland & This newsletter does not purport to be comprehensive or to give legal advice. While every effort has been made to ensure A team of twenty from Holland’s excellent shooting accuracy, Lockton Companies LLP cannot be held liable for any errors, omissions or inaccuracies contained within the document. Lockton REAC partook in a ground and included 11 teams Readers should not act upon (or refrain from acting upon) information in this document without first asking further specialist or professional advice. Community Volunteer Day from across the property and Lockton Real Estate & Construction. A division of Lockton Companies LLP, authorised and regulated by the Financial Conduct for the Kids Inspire Charity at construction industry. The Authority. A Lloyd’s broker. Registered in England & Wales at The St Botolph Building, 138 Houndsditch, London, EC3A 7AG. Hargrave House, Essex. clear winners of the day were Company No. OC353198 They carried out various Capreon, who not only won jobs such as painting and best team shot, but three of designing and constructing a their team members also won gazebo from scratch. best individual shot.

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